Journal of Islamic Banking and Finance

The Impact of Global Financial Crisis on the Stability of Islamic Banks: An Empirical Evidence
Mosab I. Tabash, Raj S. Dhankar

Abstract
Islamic banking and finance is one of the fastest growing segments of the global banking industry and has risen to prominence recently through its distinctive characteristics. The emergence of Islamic finance can be traced back to 1963 in Egypt, while its importance comes to the global financial system only after the global financial crisis occurred in 2008. Many earlier studies have discussed theoretically the relevance of Islamic finance principles and instruments in achieving financial stability under different financial situations. However, few studies have empirically examined the relationship between Islamic banking and financial stability. To help in filling this gap in empirical literature, this study attempts to examine the impact of global financial crisis on the key performance ratios of all full-fledged-Islamic banks working in the Kingdom of Saudi Arabia (KSA). To document the relationship between the performance of Islamic banks and financial stability, time series data from 2005 to 2010 for all fledged-Islamic banks working in KSA are used. Firstly, the trend analysis method is utilized where yearly financial ratios of Islamic banking sector are computed using Microsoft Excel. For the analysis, liquidity ratios and capital adequacy ratios are determined. Secondly, One Way Analysis of Variance (ANOVA) is used to test hypotheses using SPSS. Our empirical results show that Islamic banking sector is more stable sector in terms of, capital adequacy, and liquidity in the period under study. The results of the Kingdom of Saudi Arabia are supporting the viewpoint that Islamic finance is more stable and safe way of financing.

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